Kellogg Company has announced first quarter 2021 results and raised its full-year financial guidance.
First Quarter Highlights:
During the global COVID-19 pandemic and unprecedented operating environment, Kellogg continues to execute well against its priorities of protecting our employees’ health and safety, supplying food to the marketplace, and aiding our
- Strong net sales growth was broad-based across regions and global categories despite lapping exceptional year-ago
- Operating profit and earnings per share grew on top of year-ago exceptional growth as higher net sales and operating leverage resulted in balanced financial
- On the strength of this performance, the Company increased its full-year financial
“Amidst continued difficult circumstances, our organization executed exceptionally well in the first quarter and delivered very good results, both financially and in-market,” said Steve Cahillane, Kellogg Company’s Chairman and Chief Executive Officer. “The quarter featured continued momentum in major brands and categories, accelerated growth in emerging markets, and effective management of cost pressures through productivity and revenue growth management.”
Mr. Cahillane added, “This strong start to the year enables us to raise our full-year financial outlook, and underscores confidence in our ability to sustain balanced financial delivery.”
Guidance and goals expressed in this press release are on a currency-neutral basis and adjusted to exclude restructuring charges, mark-to-market adjustments of pensions (service cost, the interest cost, expected return on plan assets, and other net periodic pension costs are not excluded), and various financial instruments, and other costs impacting comparability. Organic basis also excludes acquisitions, divestitures, and differences in shipping days.
Expected net sales, margins, operating profit, and earnings per share are provided on a non-GAAP basis only because certain information necessary to calculate such measures on a GAAP basis is unavailable, dependent on future events outside of our control, and cannot be predicted without unreasonable efforts by the Company. Please refer to the “Non-GAAP Financial Measures” section included later in this press release for a further discussion of our use of non-GAAP measures, including quantification of known expected adjustment items.
The company will use the term “low single-digit” to refer to percent changes of up to 3%, “mid-single-digit” to refer to percent changes between 4% and 6%, “high single-digit” to refer to percent changes between 7% up to 10%, and “double-digit” to refer to percent changes of 10% or more.
Financial Summary: Quarter ended
- Non-GAAP financial See “Non-GAAP Financial Measures” section and “Reconciliation of Non-GAAP Amounts” tables within this release for important information regarding these measures.
First Quarter Consolidated Results
Kellogg’s first quarter 2021 GAAP (or “reported”) net sales increased 5% year on year, as elevated demand for packaged foods consumed at home and favorable currency translation more than offset continuing softness in away-from-home channels and on-the-go occasions. On an organic basis, which excludes the impact of currency, the Company’s net sales increased by 4%.
Reported operating profit in the first quarter increased by approximately 3% versus the year-ago quarter primarily due to net sales growth and resultant operating leverage, which more than offset unfavorable mark-to-market impacts. On an adjusted basis, operating profit grew by 13%, and on a currency-neutral adjusted basis, operating profit increased by 12%.
Reported earnings per share increased by approximately 6% from the prior-year quarter due to the higher reported operating profit despite a higher reported effective tax rate. On an adjusted basis, earnings per share increased 12%, and excluding currency translation, adjusted earnings per share increased by 8%.
Year-to-date net cash provided by operating activities was $235 million. After capital expenditures of
$173 million, cash flow, defined as net cash provided by operating activities less capital expenditure, was $62 million through the end of the first quarter, which is typically the Company’s lowest quarter for this metric.
First Quarter Business Performance
Since the onset of the pandemic, Kellogg Company has prioritized keeping employees safe, supplying food to the marketplace, and aiding its communities. The Company has invested in overtime pay and in safety and sanitation supplies and protocols in manufacturing facilities, distribution centers, and across the sales organization, while continuing travel and meeting restrictions. In order to meet elevated demand for its products, the Company has increased production and invested in its employees, warehousing labor, and transportation capacity. And, in support of the Company’s commitment to its communities through the pandemic, the Company and its charitable funds have donated significant amounts of cash and food since the beginning of the crisis.
During the first quarter, Kellogg Company continued to execute well in this uncertain environment.
Kellogg sales through retail channels remained strong, despite lapping last year’s pandemic-related surge, and was led by many of the Company’s largest brands and by particularly strong growth in e-commerce. Away-from-home channels continued to decline amidst the pandemic, though their decline moderated sequentially in the first quarter. Also notable was the Company’s sustained momentum in emerging markets, despite challenging conditions. In an environment of rising cost inflation, the Company has taken steps to preserve underlying profitability through productivity, mix, and revenue growth management.
Kellogg North America’s reported net sales in the first quarter increased by approximately 2%, aided modestly by favorable currency translation. On an organic basis, net sales increased by 1% driven by continued elevation of demand for packaged foods consumed at home and by favorable timing of shipments. Kellogg North America’s reported operating profit growth of 4% was driven by higher net sales and resultant operating leverage. On an adjusted and currency-neutral adjusted basis, operating profit increased by 4%.
Kellogg Europe’s reported net sales increased 10% driven by favorable currency translation and organic- basis growth of 3%. Pringles sustained its strong momentum across the Region, and while cereal sales lapped last year’s pandemic-related surge, they remained elevated relative to pre-pandemic levels. Kellogg Europe’s operating profit increased nearly 16%, benefiting from higher net sales and favorable currency translation. On an adjusted basis, operating profit increased by 14%, and on a currency-neutral adjusted basis, operating profit increased by 8%.
Kellogg Latin America‘s reported net sales increased 4% despite negative currency translation. On an organic basis, net sales increased 10%, as cereal demand across the region remained elevated while snacks’ growth accelerated, especially in Brazil where local production and a new distributor are continuing to benefit Pringles. Reported operating profit increased by 23% year on year, driven by higher net sales and decreased overhead, and was delivered in spite of adverse currency translation. On an adjusted basis, operating profit increased by 40%, and on a currency-neutral adjusted basis, operating profit increased by 44%.
Kellogg Asia Pacific, Middle East and Africa (“AMEA”) reported net sales increased by 14%, driven by growth momentum across the Region and across cereal, snacks, and noodles and other. On an organic basis, net sales increased by 15%. Kellogg AMEA’s reported operating profit increased 37% due to the higher net sales, favorable currency translation, and a lack of one-time charges. On an adjusted basis, operating profit increased by 31%, and on a currency-neutral adjusted basis, operating profit increased by 25%.
Kellogg Raises Full-Year Financial Guidance
Kellogg Company raised its full-year financial guidance on the strength of its first quarter results. Specifically, the Company’s revised guidance for the full year is:
- Organic net sales growth is now expected to finish 2021 approximately flat year on year, up from previous guidance of a decline of approximately (1)%. This implies a 2-year compound annual growth rate of almost 3%.
- Currency-neutral adjusted operating profit growth is now projected to decline approximately (1)% – (2)% year on year, an improvement from previous guidance of a decline of approximately (2)%. This equates to a 2-year compound annual growth rate of approximately 4% excluding since-divested businesses from the 2019
- Currency-neutral adjusted earnings per share for the full year is now estimated to increase by approximately +1% – 2% year on year, an improvement from previous guidance +1%. This implies a 2-year compound annual growth rate of approximately 5% excluding since-divested businesses from the 2019 base.
- Net cash provided by operating activities is now expected to finish 2021 at approximately $1.6 – $1.7 billion, above the previous guidance range of $1.6 billion, with capital expenditure of approximately $0.5 billion. As a result, cash flow is now expected to finish 2021 at $1.1 – $1.2 billion, an increase from the previous guidance of approximately $1.1
Excluded from this guidance are any significant supply chain or other prolonged market disruptions related to the pandemic or global economy.